WASHINGTON-NCUA's decision to inject a $1-billion capital note into U.S. Central and compel natural person credit unions to shore up the share insurance fund to the tune of an estimated $4.7 billion was a "cautious and deliberate" move to revamp the corporate structure, keep open all possibilities and ensure costs did not spiral out of control, says the head of Callahan & Associates.
Callahan's CEO Chip Filson, argued the plan was not a "knee-jerk or precipitous action" on the part of NCUA, adding the administration has included natural person CUs, trade associations and others in the discussion on how to shore up the corporate losses. Filson pointed to frequent webinars and letters to directors as examples of the open lines of communication between NCUA and the movement it regulates, though he conceded the solution is not painless.
"It's a difficult problem; it's not something where there is a silver bullet and you just fix it." he said. "This is a very deliberate first step, it sets a foundation to continue to look at the problem and seek the least costly solution."
Filson, a former Central Liquidity Facility president, acknowledged NAFCU's call on Congress and Treasury Secretary Timothy Geitner to change federal law and allow the facility to directly lend to corporates instead of being forced to use the SIP and HARP avenues.
"One thing we learned is that the CLF is not as flexible an institution as it needs to be," he said. "I think this is an opportunity to go to Congress to tell them we need to have a more responsive CLF."
While a haircut of 62 basis points may hurt the bottom line at individual natural person credit unions, Filson believes that a single-digit percentage decline in net worth for the entire indu.s.try would represent an "incredibly positive outcome for the system as a whole."
"We're not immune from the economy around us. A 5%, $4.7-billion loss would reflect the strength of the credit union system and the limited risks it was taking," he added. "Even the smartest minds in the world got caught with this stuff. To have only a 5% diminution of net worth would be a very positive outcome given the context."
The former Director of the Office of Examinations at NCUA sympathized with CUs that face a hefty assessment, but pointed out the administration has been warning since the summer that action would need to be taken to prevent a liquidity problem and clamp down on systemic risk.
"I don't think anyone can be happy about the event occurring, but if this was a surprise to anyone they haven't been reading their Credit Union Journal. Where have they been? The event was sudden only to the extent that the U.S. Central estimate of loss came in much higher than everyone was led to believe would be the case," he said.
